In Oklahoma, if you go through a judicial foreclosure and the sale price is not enough to cover the balance of your mortgage, your lender can come after you for the "deficiency." The lender can also seek a deficiency judgment following a nonjudicial foreclosure, but not if you notify the lender that the property is your homestead.
Read on to learn what a deficiency judgment is, when your mortgage lender can collect one against you in Oklahoma and when it cannot, and what happens to the deficiency in a short sale or a deed in lieu of foreclosure in Oklahoma.
(For more articles on foreclosure in Oklahoma, visit our Oklahoma Foreclosure Law Center.)
What Is a Deficiency After Foreclosure?
When a lender forecloses on a mortgage, the total debt owed by the borrowers to the lender frequently exceeds the foreclosure sale price. The difference between the sale price and the total debt is called a deficiency.
Example. Say the total debt owed is $200,000, but the home only sells for $150,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount (in our example, $50,000) from the borrowers by doing such things as garnishing the borrowers’ wages or levying the borrowers’ bank account. (Learn about methods that creditors can use to collect judgments.)
(To learn more about deficiency judgments in the foreclosure context, see our Deficiency Judgments After Foreclosure area.)
Oklahoma Deficiency Judgments
Most foreclosures in Oklahoma are judicial and go through the state court system.
Nonjudicial foreclosures, where the lender does not have to go to court, are allowed in Oklahoma. However, the homeowner has the right to opt for a judicial foreclosure. To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)
Learn more about the Oklahoma foreclosure process.
Deficiency judgments are allowed in judicial foreclosures. In Oklahoma, the lender may obtain a deficiency judgment in a judicial foreclosure, but it must request the deficiency judgment:
- when making a motion for an order confirming the foreclosure sale, or
- within 90 days after the foreclosure sale (Okla. Stat. tit. 12, § 686).
Deficiency judgments are also allowed following nonjudicial foreclosures, but not for homestead properties. The lender may obtain a deficiency judgment within 90 days of a nonjudicial foreclosure sale, but not if the borrower sends written notice to the lender by certified mail at least ten days before the foreclosure sale that the property is the borrower’s homestead (as defined in the Oklahoma Constitution) and that the borrower elects against a deficiency judgment (Okla. Stat. tit. 46, § 43(A)(2)(c)).
Limitation on deficiency judgments for both judicial and nonjudicial foreclosures. The maximum amount allowed for a deficiency judgment is the lesser of:
- the difference between the total debt (including the amount of the indebtedness, interest, attorneys’ fees, as well as the costs and expenses of sale) and the fair market value of the property, or
- the difference between the total debt and the foreclosure sale price (Okla. Stat. tit. 12, § 686 and Okla. Stat. tit. 46, § 43(A)(2)(d)).
Can Lenders of Second Mortgages, HELOCs, and Other Junior Liens Collect From You?
Generally, when a senior lienholder forecloses, any junior liens (these would include second mortgages and HELOCs, among others) are also foreclosed and those junior lienholders lose their security interest in the real estate. If a junior mortgage holder has been sold-out in this manner, that junior mortgage holder can sue you personally on the promissory note. This means that if the equity in your home doesn’t cover second and third mortgages, you may face lawsuits from those lenders to collect the balance of the loans.
Learn more in our article What Happens to Liens and Second Mortgages in Foreclosure?
Deficiency After a Short Sale in Oklahoma
A short sale is when you sell your home for less than the total debt balance remaining on your mortgage and the proceeds of the sale pay off a portion of the mortgage balance. (Learn more about short sales to avoid foreclosure.)
In Oklahoma, a lender can get a deficiency judgment following a short sale. To avoid a deficiency judgment, the short sale agreement must expressly state that the lender waives its right to the deficiency. If the short sale agreement does not contain this waiver, the lender may file a lawsuit to obtain a deficiency judgment.
Deficiency After a Deed in Lieu of Foreclosure in Oklahoma
A deed in lieu of foreclosure occurs when a lender agrees to accept a deed to the property instead of foreclosing in order to obtain title. With a deed in lieu of foreclosure, the deficiency amount is the difference between the fair market value of the property and the total debt. (Learn more about deeds in lieu of foreclosure.)
In Oklahoma, a lender can get a deficiency judgment following a deed in lieu of foreclosure. To avoid a deficiency judgment with a deed in lieu of foreclosure, the agreement must expressly state that the transaction is in full satisfaction of the debt. If the deed in lieu of foreclosure agreement does not contain this provision, the lender may file a lawsuit to obtain a deficiency judgment against you.
Oklahoma Foreclosure Law
To find the Oklahoma statutes, go to the State Legislature’s webpage at www.oklegislature.gov. Scroll over “Legislation” at the top of the page and click on “Browse Oklahoma Statutes.” The statutes governing foreclosures and deficiency judgments in Oklahoma can be found in Title 12 and Title 46.